AMB January Update

As the new year begins, new opportunities are upon us with the hope of future rate “decreases” for the year ahead. The RBA will now meet eight times per year, rather than the eleven monthly meetings previous years.

The new RBA board meeting dates for 2024 are:

• 5–6 February

• 18–19 March

• 6–7 May

• 17–18 June

• 5–6 August

• 23–24 September

• 4–5 November

• 9–10 December

Under the new process the meetings will commence of a Monday afternoon and be completed by Tuesday morning, hence the two days. The results then shared via a media conference on 3.30pm Tuesday.

What does this mean for you and your mortgage?

According to outgoing RBA governor, Philip Lowe, said at the Economic Society of Australia (QLD) business lunch that “the less frequent and longer meetings will provide more time for the Board to examine issues in detail and to have deeper discussions on monetary policy strategy, alternative policy options and risks, as well as on communication.”  

When the eight-meeting cycle was first proposed following the TBA review earlier last year,

The Australian Financial Review reported that Australians may be able to expect fewer out-of-cycle rate rises, as banks and other mortgage lenders would have more time to prepare for each potential cash rate move.  

The ABC reported that fewer meetings could mean fewer rate changes, giving households more time to adjust their budgets to each RBA decision. However, there’s also the risk that larger moves could be necessary at each meeting.

What are the chances you'll get mortgage repayment relief this year?

Here are some "predictions" for the year ahead

When the head of Australia's Reserve Bank (RBA) kept the door open to more increases in the new year. However, data out last week has those with economic insight talking about the next rate cut rather than increases. After 13 interest rate rises in 19 months, could the cash rate move downwards in 2024?

Key indicator points to rate cut

In a post-meeting statement after the RBA kept rates on hold at its last meeting in 2023, governor Michele Bullock indicated "further tightening of monetary policy" could be required to "ensure that inflation returns to target in a reasonable time frame."

She also said the direction rates would go would depend upon further "data and the evolving assessment of risks." The latest consumer price index showed a lower rate of inflation than economists had expected, prompting discussions of whether rate increases could be over for now.

Economists had tipped a 4.4 per cent rise in prices, but Australian Bureau of Statistics figures showed inflation slowed from an annual rate of 4.9 per cent in October to 4.3 per cent in November.

Some market analysts who spoke with SBS News believe unless there was a significant economic shift, the inflation slowdown likely spells the end of the RBA's tightening cycle.

When will the RBA reduce interest rates?

Deloitte Access Economics partner Stephen Smith said the inflation figures "really cement the case that there won't be an interest rate increase in February or indeed, another one in this cycle."

"We think that we've now reached the peak in interest rates and that there's all likelihood that there will be some interest rate cuts later on in 2024." He forecasted a decrease in interest rates could come in September. "The RBA will want to be really quite sure that it has inflation well in check before it starts cutting interest rates."

Smith said mortgage holders had "borne the brunt of RBA's policy decisions and maybe they’ll get a break later in 2024."

He noted future interest rate reductions could also have some negative impacts.

However, he added: “The other side of that story is while borrowers benefit when interest rates get cut, savers lose out and many savers tend to be those who are retired."

Possibility of an August rate cut

Josh Gilbert, market analyst at eToro said with the latest inflation data, interest rate cuts could come by August. "I think that could even be sooner if inflation keeps moving in the right direction," he said.

Gilbert said the fourth quarter consumer price index data for 2023, due to be released on 31 January would also inform the RBA's next decision on interest rates in February.

"They [the RBA] want to see consumption slowing down because ultimately if you know consumers are still spending in a big way, that is going to feed into inflation," he said.

Potential interest rate reprieve in June

Senior market analyst for IG Australia, Tony Sycamore, told SBS News a rate cut could come as soon as June.

His optimism was also due to the inflation figures.

"The headline and the core or the true mean, whichever one you'd like to look at, they showed good signs of deceleration, which keeps that disinflation narrative in place," he said.

Three rate cuts in 2024

AMP chief economist Shane Oliver predicted there will be three rate cuts in 2024, starting in June, but he said rates would not go down as fast or as far as they had risen in recent years.

“I doubt very much that we're going to get back to the lows we saw two years ago, when we had the variable rate, and we had the cash rate at 0.1 per cent," he said.

“I suspect we've come into a more inflation-prone world now, because globalisation - which was a big driving factor behind pretty low inflation pre-pandemic - is in reverse to some degree; government policies are a little bit more protectionist, with more spending on defence globally and extra pressure on commodity prices."

“Populations are ageing, there are less workers and more spenders, particularly as the baby boomers retire.”

“All of those things probably make the world a little bit more inflation-prone ... so central banks will probably be somewhat cautious in terms of the speed with which they cut rates and how low they ultimately go.”

Could Australia go into a recession?

While it is not AMP’s base case, Oliver said there is "always a risk that we go into recession, that's the sort of the flip side of all of this.”

“With inflation starting to fall because of weaker economic growth ... people are directing more of their spending into periods when the sales are on and they often do that because their budgets are pretty stretched," he said.

“That could be a telltale sign that we're coming into a tougher economic period in terms of economic activity with higher unemployment."

Oliver said if the RBA has moved "too much", it may have to cut interest rates more aggressively.

“If we go into recession, then they probably have to cut by bigger amounts.”

He said while aggressive rate cuts would be good for those with steady employment who could service their mortgage, such economic conditions were "not so good for those who lose their jobs.”

Smith agreed Australia’s economic environment in 2024 would be “relatively weak.”

He said this was a “carryover” from 2023 when household finances began to become strained.

“We think that consumer spending and household budgets generally are under a lot of strain, we're still seeing some households roll off fixed-rate mortgages onto much higher variable rates and we're also seeing that housing construction sector remain really in the doldrums.”

The RBA's next meeting will be on 6 February.

If you would like to have a chat around your current mortgage or are looking to start the new off with purchasing your next home, please send us a DM or hit the link below and we can send you an invite and lock in a time for a quick chat.

https://www.ambfs.com.au/